Encana Corp. releases first Mancos Shale results

FARMINGTON — Encana Corp. will drill a total of 12 wells targeting Mancos Shale oil after receiving encouraging results from its first test well, the company announced last week.

The well, Lybrook H36, yielded a 30-day initial production rate of about 440 barrels of oil per day, Encana disclosed to investors.

An Encana spokesman said the initial production was enough to warrant further development. "That's an indication that we're pleased with the results we've seen to date," Encana's Doug Hock said.

The figure is the first publicly released data from a test well targeting Mancos Shale oil.

Geologists and industry officials have expressed hope that technological advances would enable wells to reach the oil-rich shale in the San Juan Basin, an area better known for producing natural gas.

Encana is partnering with local firms, including Aztec Well Servicing Co. and Dugan Production Corp., to exploit leases in the southern portion of the basin targeting oil-rich formations. Aztec is drilling the wells, and Dugan has taken advantage of its property interests in the area.

A sharp decline in natural gas prices has driven drillers to search for oil.

"Our strategy as a company right now is to increase the amount of natural gas liquids and oil in our portfolio," Hock said. "Given that, our exploration in the San Juan Basin is a key part of that, and that's why you've seen the commitment there to explore that."

Encana has a 174,000-net-acre position in the basin, the company said.

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A major firm based in Calgary, Alberta, Encana has four Mancos Shale wells producing oil and a fifth being drilled, the company disclosed. Lybrook H36 was drilled into the Gallup formation, part of the Mancos Shale, to a lateral length of 4,100 feet and at a cost of $4.3 million.

The well is located about 50 miles south of Bloomfield in Sandoval County.

At current oil prices, the well is producing more than $35,000 a day.

The production is about 10 times what one would expect from a traditional vertical well in the Gallup formation, said John Byrom, president and CEO of D.J. Simmons Inc., a Farmington independent producer.

"I'd take it," Byrom said.

Steve Dunn, drilling and production manager at Merrion Oil & Gas in Farmington, said the results are "very encouraging."

Merrion also is active in the Mancos Shale, partnering with a larger company to drill four wells. Dunn said he cannot disclose the partner. Merrion plans to drill its wells in September, he said.

Dugan Production Corp. also has been aggressive. The Farmington company submitted two winning bids in a New Mexico Land Office auction Tuesday, one of $1.2 million for a 396-acre parcel ($3,028 per acre) and another of nearly $790,000 for a 640-acre parcel ($1,234 per acre).

Company founder Tom Dugan said he could not comment on the Encana program.

Jason Sandel, executive vice president of Aztec Well, also said he could not discuss specifics of Encana's program. But, he added, "Any Mancos Shale oil production in the San Juan Basin is encouraging."

The findings could accelerate the basin's growing oil production.

Oil production in Northwest New Mexico jumped 23 percent in 2011 from the previous year, according to the state Oil Conservation Division, even as natural gas production continued to decline. New Mexico's portion of the San Juan Basin produced 1.1 million barrels of oil in 2011.

Local officials expect Encana's results will spur other companies evaluating the Mancos Shale to push ahead.

"This news will be encouraging for those players to embark on the programs that they have planned, and to do so with some confidence," said Farmington Mayor Tommy Roberts, an oil and gas attorney.

He also cautioned that it would take more exploration to truly know if the shale play proves fruitful.

However, if oil production booms in the San Juan Basin, it could go a long way toward reversing the area's job losses of the last several years.

"Anybody who's concerned about economic development here in San Juan County ought to be pleased with that news," Roberts said.

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